Why You May Be the Only One You Can Trust
When frauds like Bernie Madoff and Sir Robert Allen Stanford make headlines, the follow-up stories always talk about how advisors need to be "fiduciaries."
It's a $10 word that doesn't ordinarily come into conversation, so it's not worth two cents to the majority of people who don't understand it. Oh, they may hear a phrase like "fiduciary duty" and know it applies somehow to their finances, but they don't truly know what it means.
As of 2010, President Barack Obama has proposed a regulatory overhaul that would hold brokers to a "fiduciary standard;" in plain English, that means the brokers would be forced to place their client's interest ahead of their own.
That may sound odd, because most people assume that the broker or financial intermediary they work with has their best interests at heart. Truth be told, however, most of the people who want to give or sell you advice about your money need only to live up to a standard of "suitability," meaning they can't put a client into inappropriate investments, such as speculative penny stocks for an 80-year-old widow. They must reasonably believe that the investment and insurance products they want you to buy are appropriate for your situation.
Read that again. The standard is "appropriate" for you, not "best" for you.
That's one of the dirty little secrets of the financial world.